Bending Adversity: Japan and the Art of Survival Read online

  So what, if anything, should the Japanese government have done differently to revive its flagging economy? It has been lambasted for ponderous policy decision-making, but there is no clear consensus, even among professional economists, as to quite what it should have done. It’s a little like the Woody Allen joke about the restaurant with lousy food and overly small portions. Japan should have moved faster, though there is no real agreement as to which direction it should have taken. The sharp divide in opinion about how the US and Europe should tackle their own economic crises suggests that, even today, we don’t really know – even with the benefit of twenty years’ hindsight. Should Japan have cut spending and refrained from printing money? Or should it have printed and spent with greater abandon?

  Of course, there were other steps it could have taken to breathe life into the economy, whole swathes of which were protected for the benefit of vested interests. As we shall see, even Koizumi, the only prime minister to take on the issue seriously, was better at talking about economic revolution than delivering it. ‘What we need are opening and deregulation. Electricity, nursing, childcare, agriculture, fishery, forestry,’ says Sahoko Kaji, the economist at Keio University. ‘We are doing none of it.’42 She thought that Japan’s economy could be spurred to much greater efficiency and innovation through competition if Tokyo allowed the private sector a more unhindered role and signed meaningful free trade agreements with international partners. But because of strong opposition, particularly from the conservative and influential farming lobby, Japan had failed on both counts. Meanwhile, South Korea, a direct competitor, had concluded trade deals with both Europe and the US, giving its manufacturers preferential access to those huge markets.

  One clear lesson from Japan’s twenty years of economic difficulties is: don’t get into a mess in the first place. Once the bubble burst in 1990, the government failed to recapitalize the banking system, leaving the Koizumi administration to clear up the mess finally more than a decade later. Many, though, reserve their severest criticism for the Bank of Japan, which they blame for allowing the economy to fall into a deflationary funk. Here the lesson also seems clear: the central bank should have acted earlier and more aggressively, pulling out all the stops until the economy was back on track. It did lower interest rates to near-zero, but since companies didn’t want to borrow, that did little good. The bank, however, refrained from unorthodox policies – such as printing money to buy bonds – until much later. It even briefly raised interest rates in 2001, suggesting it didn’t take the deflationary threat seriously enough.

  In 1999, Ben Bernanke, who would later take over the US Federal Reserve, lashed out at Japan’s central bank for what he said was the country’s self-induced paralysis. He urged the bank to experiment more boldly in an effort to stimulate demand and slay deflation. It could, he said, print money to buy government bonds, foreign currency or any number of assets – anything to get things moving. Japan’s central bank did eventually undertake unorthodox measures, even at one stage printing money to buy shares. Some sceptics said the limited effect of those measures proved that quantitative easing didn’t work. Others said it was a case of too little too late. Whatever the faults of Japan’s central bank, Bernanke found dealing with an economic crisis harder in practice than when he was lecturing Tokyo on monetary policy theory. The US recovery has been painfully slow. Four years after the Lehman shock, real median annual household income had fallen 5 per cent.43 Bernanke is said to have privately admitted that he had been too hard on Japan.44

  8

  Samurai with a Quiff

  They called him henjin. Literally it meant ‘strange person’, though perhaps it was better rendered as ‘oddball’ or ‘eccentric’. The Japanese are not as conformist as they are sometimes made out to be, but to be ‘odd’ or ‘strange’ is not usually considered desirable. In the case of Junichiro Koizumi, however, the most charismatic Japanese prime minister in a generation, it was different. Koizumi was different. And in his case, to be different was good.

  Koizumi sidled on to the main political stage like some larger-than-life dandy in 2001. He took office just six months before I had arrived in the country. Japan was embarking on what looked like a second lost decade and was in yet another recession following the brief flurry of the dotcom bubble. There was little sense of crisis, but there was a quiet despondency, a feeling that Japan’s best days were behind it and that the political system had run out of ideas. Countless stimulus packages had failed to breathe life into the economy. There were fewer good jobs for graduates. Koizumi’s promise of ‘reform without sacred cows’ offered what seemed like a radical alternative to accepting decline as a fait accompli.

  Koizumi was sixty-one years of age. By the grizzled standards of some political ancients that was not old. If anything, he came across as brash and youthful. Physically in good shape, he had lean, lively features. A flicker of amusement often lurked beneath his fixed expression and sleepy, half-closed eyes. There was something dapper about the way he dressed, even if it was just that he was wearing an open-necked shirt or a suit a few shades paler than it really ought to have been. Above all, it was Koizumi’s hair that caught people’s attention. His silvery grey, wavy mane lent him a passing resemblance to Richard Gere and gave rise to his nickname of ‘Lionheart’.1

  Many women, even young ones, found Koizumi devilishly handsome. His speeches were sometimes interrupted by squeals from the audience and, on at least one occasion, a female devotee fainted with the excitement of it all. (With perfect aplomb, Koizumi stopped in mid-sentence to check if she was all right.) The attraction was, if anything, magnified by Koizumi’s cheerful admission to spending nights in Ginza hostess bars. He was, after all, a bachelor, long-since divorced from his wife, the mother of his three sons. He somehow managed to combine an urbane stand-offishness with a Ronald Reagan-like feel for what moved ordinary people. It was a combination reflected in his love of both opera and heavy metal. When, after a few months as prime minister, he released a CD featuring his twenty-five favourite Elvis songs, this act of cocky self-promotion confirmed his reputation as the man for whom Japan had long been waiting.

  Koizumi came from nowhere to grab the presidency of the Liberal Democratic Party, and hence the premiership of Japan, in April 2001. After the carousel of recession-dogged politicians in the 1990s, Koizumi was like a breath of sweet air. People wore Koizumi T-shirts, bought Koizumi posters and shouted out during his speeches as though he were a rock star. Unlike other politicians, who employed the noncommittal flowery ambiguities in which the Japanese language excels, Koizumi spoke in simple, easy-to-understand soundbites. He told a country bemused by a decade of economic logjam and political merry-go-round that there would be ‘no growth without pain’. He would ‘change the Liberal Democratic Party, change Japan’, he said in a catchphrase that preceded that of Barack Obama by many years. If he couldn’t persuade his party to alter its tired old ways, he would smash it to pieces. His blunt slogans offered the exciting, if unnerving, prospect of overhaul and renewal. Much of the Japanese public hungered for a radical shift of direction after years of confidence-sapping drift, though many wanted the sort of change that would merely reboot the old model. Rather than someone who would destroy the system, as Koizumi professed to want to, many of his followers sought someone who could revive it and, in so doing, preserve the comfortable society so painstakingly built after the war. In short, they wanted the sort of change that would allow Japan to stay the same.

  If Koizumi captured the mood of the nation at the start of a new century, his rise to the top was a fluke. Even when his name began to infiltrate the headlines in early 2001, few expected him to become prime minister. His popularity with the public had seemed almost irrelevant. Under Japan’s parliamentary system, it was the governing party, not the electorate, which chose the prime minister. That meant the Liberal Democratic Party, which had governed Japan for forty-nine of the previous fifty years in one
of the world’s great feats of political longevity. Even China’s Communist Party wanted to know how the mighty Liberal Democrats had managed to preserve power for so long, all the while holding regular elections and maintaining the trappings of a parliamentary democracy. The party was Japan’s government and opposition rolled into one. It picked the prime minister on the basis of horse-trading between the heads of powerful factions that coexisted within the party’s loose framework. In normal times, its leader was decided long before the vote reached the floor of the Diet, Japan’s parliament. In a typical case of factional rigging, Koizumi’s predecessor, the pitifully unpopular Yoshiro Mori, was said to have been chosen by just five men.2

  The faction bosses, as much mafia dons as politicians, had done for Koizumi twice before. He had campaigned to become head of the Liberal Democratic Party in 1995 and again in 1998. His views on vested interests and his avowed determination to break the bonds between money and politics made him an unlikely leader for a party that thrived on patronage. Both times he had been soundly beaten, spat out by a party machine that did not want an unpredictable eccentric running the show. In 2001, it looked as though the same would happen again. Koizumi was up against Ryutaro Hashimoto, a black belt in kendo and faction boss who had been prime minister from 1996 to 1998. Party elders were looking for an experienced pair of hands after the disastrous premiership of Mori, whose popularity rating had sunk to an embarrassing 7 per cent. That was low even by the standards of recent prime ministers, many of them ineffective men of wan personality. The party was preparing to rally around Hashimoto in its hour of need.

  But Koizumi had an unexpected advantage. The party had recently altered its voting system to give it at least a semblance of democratic accountability. This time, as well as parliamentarians, 3.2 million rank-and-file members were to be consulted. Grassroots supporters would account for a little less than one-third of the total votes, enough to have their say but not enough to determine the outcome. Still, that gave Koizumi, with his simple message and showman qualities, the opportunity to appeal over the heads of the grandees to those in the base. Party hacks had not intended to take the votes of rank-and-file members too seriously, but they made a crucial mistake by allowing the local chapters to vote first. When the tally came in from the prefectural offices, Koizumi had won an astonishing 87 per cent of the vote. The message from the grassroots was overwhelming. Many parliamentarians felt they could not simply override the verdict of the rank-and-file. One young MP expressed the changing attitudes, saying, ‘I am going to vote for who I want to support, not just on the orders of my faction. People are rejecting the party’s way of handling politics. This is the last chance for the Liberal Democratic Party to restore trust.’3 Koizumi won the parliamentary vote too, albeit by a slimmer margin. Against the odds, and by popular demand, he would become prime minister.

  • • •

  Sochiro Tahara, a Koizumi confidant and host of an influential political chat show, said the daring new prime minister had subverted the norms of what he called ‘the village’. ‘Koizumi has not followed the village rules at all,’ Tahara told me in the champagne bar of ANA Intercontinental Hotel where he habitually held court. ‘He is not top of a faction. He has never made contributions to factions or to his superiors, so he has never been named to one of the party’s three big posts. Yet without doing any of these things, he has risen to become prime minister. This is exceptional.’4 Heizo Takenaka, the professor whom Koizumi would pluck from academia to sort out the banking system, called him simply ‘the miracle prime minister’.5

  The very manner in which Koizumi chose his first cabinet seemed to confirm his radical agenda. Instead of conferring with faction bosses, he handpicked his own team, barely consulting even close advisers. When the newly anointed chosen stood in stiff formation for the traditional group photograph, with the men dressed in frock coats and grey pin-stripe trousers, there were five women among their ranks, an unusually high number. Most prominent among them was Makiko Tanaka, the new foreign minister, a woman every bit as outspoken and popular as Koizumi himself.6 Koizumi also broke with tradition by picking three people from the private sector, an affront to long-serving party elders, who saw cabinet positions as their due. Most prominent of the private sector appointments was Takenaka, a professor of economics at Keio University, who went on to serve as a loyal lieutenant for Koizumi’s entire five-and-a-half-year tenure. Takenaka would later describe the excitement of the dawning of a new age. When his boss took to the floor of the Diet, answering questions off-the-cuff without recourse to the usual dry documents prepared by bureaucrats, Takenaka admitted to feeling ‘quite giddy’ with the thrill of it all.7

  Koizumi had a different kind of presence in parliament and an entirely different rapport with the press and public. He took to appearing twice daily before television cameras when he would pepper the audience with pithy soundbites. He gave the impression of speaking directly to the public, not to the party bosses or vested interests who were seen to have run Japan from behind the shoji screen for so long. In his inaugural speech to the Diet on 7 May 2001, a set-piece occasion of great import, he laid out his reform agenda. He promised to deal swiftly with the non-performing loans that were clogging the banking system a decade after the bursting of the bubble. He hinted that he would allow companies, even whole industries, to die if necessary. ‘After the Second World War, Japan achieved dynamic economic development, resulting in a tremendous increase in the standard of living,’ he told the solemn ranks of assembled Diet members. ‘Since the outset of the decade of the 1990s, however, the Japanese economy has been unable to break free of long-term stagnation as trust in our political leadership has been eroded and our society has become enveloped in a spirit of disillusionment. It is now apparent that the structures that hitherto served us so well may not be appropriate for our society in the twenty-first century.’8

  The new prime minister promised doubtless nervous parliamentarians that his so-called ‘Ceaseless Reform Cabinet’ would bring about economic rebirth through structural reform. He would repair Japan’s international standing, which had declined along with the size of its chequebook. (For a discussion of foreign policy under Koizumi, see the later chapter ‘Asia Ex-Japan’.) He would carry out his goals of fiscal repair and economic revitalization without ‘fear, hesitation or constraint’. In concluding, he told the story of the Nagaoka Clan at the start of the Meiji era. Defeated militarily and suffering dire poverty, the clan one day received a donation of 100 sacks of rice from a neighbouring province, enough to feed its hungry people for some time. But instead of distributing the rice, the ‘wise clan leader’ sold it, investing the proceeds in a school, ‘thereby ensuring a future harvest of thousands and even tens of thousands of sacks of rice for his people’, Koizumi said. The message was clear. He was prepared to put Japan through pain in pursuit of a better future. There was one hitch. In his speech, he never specified whether all the clansmen of Nagaoka had made it alive through the hungry years.

  • • •

  Ichizo Ohara, a fellow Diet member, knew Koizumi more than three decades before he became prime minister. Some fifteen years Koizumi’s senior, he remembered him as a skinny thirty-year-old in his first term as an MP. In 1969, the young Koizumi had been studying economics at the University of London when word reached him that his father had died. He was summoned back to Japan to run for his father’s parliamentary seat in Yokosuka, a port city about thirty miles from Tokyo and home to America’s most important naval base in the western Pacific. That time Koizumi lost. But he won three years later on his second attempt. ‘I remember this sassy, smart-looking guy showed up. Nobody else in the Diet had this Regent-style quiff. I thought, what a strange fellow,’ Ohara chuckled, still amused, years later, by his first glimpse of Koizumi’s distinctive hairstyle. ‘I thought he was a kind of fool.’9

  Koizumi, he said, displayed not the faintest sign of either political or material ambition. Most of O
hara’s memories of the freshman MP revolved around carousing. ‘We’d go out drinking or to yakitori bars in Akasaka, just rough-and-ready places.’ Koizumi liked fugu, the poisonous fish that can kill if wrongly prepared and is, for that reason, a delicacy forbidden to the emperor. At around the time Ohara and Koizumi were visiting Akasaka bars, a well-known kabuki actor, Mitsugoro Bando VIII, died of convulsions after boasting he could eat four servings of fugu liver. ‘We used to visit a lot of geisha too. Koizumi was very charming and a good talker. He had this nice way of laughing. He was really cute,’ Ohara recalled. ‘He used to really enjoy the banter with the geisha. We never had to call for them. He was so popular, they just came.’

  Nor did Koizumi seem to be motivated by money. That was almost unheard of for a politician. When he was first elected to the Diet in the early 1970s, Kakuei Tanaka was prime minister. Tanaka, a construction contractor and son of a horse dealer, perfected the pork-barrel politics that kept the Liberal Democratic Party in perpetual power. In the fast-growth period, money was sucked in through taxing the big corporations operating in the cities and spread liberally around the countryside where the party had its deepest roots. Tanaka, born in the relatively unpopulated prefecture of Niigata, the ‘snow country’ on the Sea of Japan, famously brought the bullet train to his home town in a classic display of patronage politics. The ‘construction state’, as it came to be known, was awash with money. There was plenty left over for the politicians who made it happen. Tanaka, whose premiership ended amid scandal in 1974, continued to dominate the party as the ‘shadow shogun’ from behind the scenes. This despite the fact that he had been charged with, and subsequently convicted of, taking bribes from Lockheed in return for advocating the purchase of aircraft. Ohara remembered how Tanaka had once tried to tempt him into politics by presenting him with Y1 million in cash. Ohara, eyes bulging, mimed his struggle to fit the thick stack of notes into his pocket as he escaped down the corridor. As he recalled it, Tanaka called after him, ‘Remember, politicians as well as thieves need big pockets.’